STOCK EXCHANGE ALLIANCES IN EUROPE AND IMPLICATIONS … · A merger of : the Amsterdam Stock Exchange (AEX) ... DEUTSCHE BÖRSE NEWCO LONDON STOCK EXCHANGE 50% 100%% 50% 100% 50%

STOCK EXCHANGE ALLIANCES IN EUROPE ANDIMPLICATIONS FOR EUROPEAN SAVINGS

Capital Markets in Europe

3

Observatoire de l’Epargne EuropéenneCash markets (1)

Capital markets in Europe

Capitalisation in bn EUR at the end of August 2000

13 061NYSE38%

6 467NASDAQ

19%

3 133London

9%

4 393Tokyo13%

1 578Frankfurt

5%

1 752Paris5%

815Zurich

2%

855.5Milan3%

745Amsterdam

2%

529Madrid

2%

525Stockholm

2%

4

Observatoire de l’Epargne EuropéenneCash markets (2)


Capitalisation in bn EUR at the end of August 2000

9 933

6 800

19 528

0

5 000

10 000

15 000

20 000

25 000

NYSE+NASDAQ Europe Continental Europe

5

Observatoire de l’Epargne EuropéenneMarket Technology (1)


Cash marketsMarket system Used by

NYSE DOT NASDAQ ACT ParisBourse Pacific S.E. Optimark Nasdaq Chicago DST Market Works Athens,Johannesburg,Tel-Aviv,Bangkok,

Manilla,Quito Tokyo CORES London SETS ParisBourse NSC

Beyrouth,Brussels,Casablanca,Lisbon,Mexico,Montreal, Sao-Paolo,Toronto,Tunis,Varsovia

Deutsche Börse Xetra Dublin,Vienna, Amman Zurich BES Milan Affari/MOT spe Amsterdam TSA Madrid SIBE Stockholm SAXESS Copenhague Australie (ASX) SEATS Australie (Compushare) ASTS Oslo,Oakland

6

Observatoire de l’Epargne EuropéenneMarket Technology (2)


Derivative markets

Market system Used by NYMEX/CME Clearing 21 ParisBourse CBOT Project A Taiwan, Argentina, Turkey, Poland (project) CBOE BART (routing) LIFFE Liffe Connect ParisBourse (Derivatives) NSC CME, Simex, BM&F, ADX EUREX Eurex MEFF Renta Fija TRACS MEFF Renta Variable SMARTS AEX SWITCH SFE SYCOM IV Stockholm OM-Click Vienna*, Milan (IDEM), Hong-Kong, ASX, AMEX,

London(OML)*,Toronto, Corea (KOFEX) Tokyo CORES-F

7

Observatoire de l’Epargne EuropéenneCapital markets in Europe

Number of futures contracts in August 2000

Number of options contracts in August 2000

Derivative products (1)

Benchmark Index Exchange Volume Daily average

FTSE Eurotop 100 Liffe 14,394 626MSCI MSCI Pan-Euro Index Liffe 10,659 463

STOXX STOXX 50 Eurex 14,984 681STOXX Euro STOXX 50 Eurex 940,738 42,761

Benchmark Index Exchange Official volume

Daily average

FTSE Eurotop 100 Liffe 250 11STOXX STOXX 50 Eurex 3,103 141STOXX Euro STOXX 50 Eurex 671,350 30,516

8

Observatoire de l’Epargne EuropéenneDerivative products (2)


Number of covered warrants listed at end of September 2000

U.K.2%

USA23%

Japan15%

Netherlands5%Other

7%

France10%

Belgium21%

Spain1%

Germany11%

Italy2%

Finland1%

Luxembourg1%

Sweden1%

Taiwan0.3%

Consolidation of European Stock Exchanges :A Long-TermProcess

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Observatoire de l’Epargne EuropéenneThe First Stage of European Exchanges’ Consolidation: cross access

Summer 1998

Consolidation of European Stock Exchanges :A Long-Term Process

First Annoucement by London and Frankfurt : cross membership

Followed by a cross access agreement between Paris and Zurich Cross access did not succeed:

As big firms already have subsidiaries in each country And Small ones remain at a local level, Only medium-sized firms could be targeted

11

Observatoire de l’Epargne EuropéenneThe Second Stage of European Exchanges’ Consolidation: Demutualisation

First experiences

Ice really startedmelting inEurope in July2000

Three experiences initiated the whole process : The development of OM Gruppen and the demutualisation of the

Stockholm Stock Exchange The Australian Stock Exchange’s demutualisation The Tradepoint initiative : a catalyst

But the acceleration of the concentration process -one might say the real start ofEuropean Stock Exchanges’ consolidation- actually started in July 2000, whenthe London Stock Exchange demutualised


12

Observatoire de l’Epargne EuropéenneThe Second Stage of European Exchanges’ Consolidation: Merging Exchanges

Euronext


A merger of : the Amsterdam Stock Exchange (AEX) the Brussels Stock Exchange (BSX) ParisBourse (SBF)

A project distinguishing : the listing of blue-chips (in London) from the New Economy segment (in Frankfurt)

iX

13

Observatoire de l’Epargne Européenne

Currentinitiatives


Jiway: an initiative of Morgan Stanley and OM Gruppen targeting the retailmarket

Euronext: One exchange, three regulations Virt-X: the projetct of Tradepoint and Swiss Exchange

London: the issue at stake is the tender offer of OM Gruppen Frankfurt: Is dominant on derivatives, but uncertainty remains on the cash

segment Milan: MTS might make it attractive in this context Madrid: Which dowry for a European marriage ?

Strategiesremain unclear

Current strategies

iX vs Euronext?

15

Observatoire de l’Epargne EuropéenneThe iX information Memorandum (1)

Conditions forthe exchange ofshares

iX vs Euronext?

Had the iX proposal been approved, a total of 118,4 millions iX shareswould have been issued of which 50% would have been attributed toshareholders of the London Stock Exchange (LSE). Subsequently thelatter would have received two ordinary iX shares for an LSE share. Theremaining 50% of the shares would have beend attributed to DeutscheBörse.

The resulting structure would have been :DEUTSCHE BÖRSESHAREHOLDERS

DEUTSCHE BÖRSE

CLEARSTREAMiX-international exchanges

LSESHAREHOLDERS

DEUTSCHE BÖRSENEWCO

LONDON STOCK EXCHANGE

50%

100%%

50%

100%

50%

100%%

16


Trading platform

iX vs Euronext?

The motivations leading to the choice of the Xetra trading system and tothe exclusion of SETS were detailed. The main argument consistedhowever in noting that Xetra is already used by a number of EuropeanStock Exchanges (in particular in Dublin and Vienna).

Transition costs of SETS to Xetra were forecasted to be substantial and aprovision of EUR 13.3 mn was deemed necessary as to pay approximatelyEUR 50,000 to each member of the LSE. Calculation methods arehowever not detailed and it remained difficult for “small” brokers toestimate precisely the impact of the technological change implied by themerger.

On the crucial issue of clearing and settlement systems’ integration fewdetails were given, whereas the associated are deemed at present byprofessionals to represent more than half of total transaction costs and toremain six to ten times higher than in the United States. Up to that timetwo separate press releases -from Crest and from Clearstream were theonly signs of a concrete intention to establish a common cross-bordersystem linking both systems.

Clearing andsettlementsystems

17


A central issue :clearing andsettlementsystems(continued)

iX vs Euronext?

Against that background, the uncertainty surrounding the creation of acentral contreparty remained unaddressed. The article 3.4.5 of theinformation note reads « It is perceived that there are a number ofalternatives:

Eurex is planning to extend Eurex Clearing House's functionality tofixed income cash instruments and repos by the fourth quarter of2000 and to cash equities and other instruments by 2001, becoming amarket-driven institution serving the needs of market users; and

the current initiative of London Stock Exchange, London ClearingHouse and CREST to develop a central counterparty is beingdeveloped in order to introduce equity cash clearing services in 2001.

Given its goal to meet the needs of market participants, iX-internationalexchanges will support the above-mentioned initiatives, or a combinationthereof, as well as those of third parties. »

18


Other centralissue : theimpact ofregulatorychanges

iX vs Euronext?

The impact of regulatory changes remained unclear, in particular on listedcompanies’ information publication obligations.

In Germany, the professeur Schneider, advisor to the German regulator(BAWe) opened a debate when he recalled that the conditions of themerger, in the absence of a European passport for listed companies, thatBritish rules applied to iX (he also added that this contadicts the statutes ofDeutsche Börse).

Sollicited for giving details on the regulatory environment of the merger,regulators (BAW and FSA) promised to give additional information on thelegal framework applicable to iX. But Few has been done since then

Given these uncertainties important London brokers joined the Apcimsassociation -representing already 100 of the 298 LSE members– inopposing the 14th September vote.

Uncertainties ledto a rejection ofthe project

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Observatoire de l’Epargne EuropéenneOM Gruppen’s bid for the LSE

The marketforecasts OMGruppen offer’sfailure

iX vs Euronext?

OM Gruppen's share price

0

50

100

150

200

250

300

350

400

450

500

550

600

03/0

3/94

14/1

0/94

30/0

5/95

10/0

1/96

23/0

8/96

10/0

4/97

20/1

1/97

14/0

7/98

24/0

2/99

07/1

0/99

23/0

5/00

01/0

1/01

28/11/97Annoncement of the merger with the SSE

30/12/97 - 23/01/98Public offer for SSE

22/01/98Ratification of the

OM/Copenhague agreement

08/07/98Project of a Pan-European

Stock Exchange

November 98HEX chooses Eurex

June 99: Start of cooperation with

Denmark

29/08/00: Public offer for London Stock Exchange plc

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Observatoire de l’Epargne EuropéenneLondon Stock Exchange : Where from now?

As successchances of boththe iX mergerand the OM bidvanish...

iX vs Euronext?

The probable rejection of OM Gruppen’s bid for the LSE leaves the dooropen to renewed speculation on the consolidation process of EuropeanStock Exchanges. After the postponement sine die of the iX merger -andthe resignation of the LSE ’s General Director- a new statu quo hasemerged in which several options may be considered :

a « British solution » according to which the LSE ’s would comecloser to the Liffe. This option should have the support of « small »London brokers who weight for a good third of the LSE’sshareownership

a solution which would see a tightening of LSE relations withEuronext. This solution would be favoured by the LSE’s biggestshareholder : UBS Warburg (owner of 3.6% of the London StockExchange);

a solution where the German Stock Exchange and a number -still tobe determined- of « partners » -be they European or not- wouldoutdo OM Gruppen’s offer.

.. several optionsmay beconsidered

21

Observatoire de l’Epargne EuropéenneEuronext ’s information circular (1)

Terms of theexchange ofshares andstructure of themerged entity

iX vs Euronext?

100 millions of Euronext shares issued of which 8 millions for the BSX,60 millions for SBF and 32 millions for AEX.

Regarding cash transaction systems, the migration towards NSC will beoperational by the end of the second quarter of 2001 (once the AEX willhave adopted this system currently used in Paris).

As far as trading plateforms for derivative markets are concerned,Euronext has not yet made its final decision. It is still consulting users andconsiders a number of alternatives among which BTS, Liffe Connect,Switch and NSC. Euronext intends to make its final decision by October31st.

Trading systems

22

Observatoire de l’Epargne EuropéenneEuronext ’s information circular (2)

Clearing andsettlement systems: solutions areidentified

iX vs Euronext?

Clearing : Clearnet -and its Clearing 21 real-time system dealing withopen positions on various types of markets- will become the centralcounterparty for all trades on Euronext.

Settlement : a single clearing and settlement through Euroclear, joined bySICOVAM (France), Negicef (AEX) and BXS-CIK

All trades settled within three days

Cost: 90 to 130 million EUR

Benefit: 50 million EUR per year.

Costs and benefits

23

Observatoire de l’Epargne EuropéenneJiway

A new competitoron the Europeanstage

iX vs Euronext?

Announcement of the creation in November 2000 of a market of 6,000European and American shares : Jiway.

Jiway is held at 60 percent by OM Gruppen and at 40 percent by MorganStanley.

The market’s key principle : low operational costs Low costs are expected to attract institutional investors But Jiway appears to have the most strategic advantage for

positioning itself on the retail market as market makers (MorganStanley, Commerzbank, Winterflood) guarantee that they willexecute transactions

at least as cheaply as the best price proposed on the market onwhich the shares were originally listed

for a transaction volumes of up to EUR 50,000

The project’schances ofsucceeding comefrom its backing byinvestment banks

Regulatory Issues are Crucial

25

Observatoire de l’Epargne Européenne… given the European context

Varioustraditions acrossEurope

Regulatory Issues are Crucial...

Various historical backgrounds : The FSA in London The BAWe in Germany COB and CMF in France

Confidentiality rules differ widely across Europe : In France, issuers have the right -under their own responsibility- not

to disclose confidential information In Belgium, the right not to disclose confidential information is

conditioned by an authorisation to do so

The European Commission’s directives have already started to create acommon framework:

Listing requirements Prospectus ISD, CAD etc

The example ofconfidentialityrules

The embryo of aEuropean system

26

Observatoire de l’Epargne Européenne… for issuers

A number ofdrawback sfor issuers

Regulatory Issues are Crucial...

iX’s drawback : Issuers have to report to a foreign regulator and thus have to

comply with foreign rules

Euronext’s drawback : Being listed only in one country does not -in the current

regulation framework- open public offer to foreign investorsunless rules are harmonised in Belgium, France and theNetherlands

Toward a single European Savings Market?

28

Observatoire de l’Epargne EuropéenneIntermediated financial investment remains high in Europe


European Households' Wealth in 1998 - Financial products held directly through UCITs, insurance companies, etc. (in %)

4 4 51 06 8

22

0

59

4 2

81

6

81

911

84

28

0

1020

30

4050

60

7080

90

Public debt Corporate bonds Listed shares Fin. invest. abroad Interm. fin. invest.

France Netherlands Italy U.K.

29

Observatoire de l’Epargne EuropéenneHoldings of shares remain low on the continent


European Households' Wealth in 1998 - Financial products held directly or indirectly through UCITs, insurance companies, etc. (in %)

1610

14

49

1116

24

39

4

1214

30 31

12

32

13

2421

6

19

0

10

20

30

40

50

60

Public debt Corporatebonds

Listed shares Fin. invest.abroad

Bankingproducts

France Netherlands Italy U.K.

30

Observatoire de l’Epargne EuropéenneMarket share of intermediation


The intermediated Share of the initial Allocationof European Households Financial Wealth (1998, in %)

39

22 23

104

26

2

15

81 81

59

19

56

31

59

84

0102030405060708090

France Netherlands Italy U.K.Banks Other non bank intermediaries (UCITs, )Insurance companies and pension funds Total of intermediated investments

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Observatoire de l’Epargne EuropéenneA new challenge: Online brokerage

Promisingdevelopments ...


Younger shareholder More liquidity Free access to the market

...mainly based onthree factors

The share of online brokerage in the Paris Stock Exchange's total trading volume

0%

5%

10%

15%

20%

25%

Jan

Feb

Mar Ap

r

May Jun

Jul

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Mar Ap

r

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1999 2000

33 rue de Miromesnil 75008 Paris - Tel +33-(0)1 43 12 58 06http://www.oee.fr

Documents

STOCK EXCHANGE ALLIANCES IN EUROPE AND IMPLICATIONS … · A merger of : the Amsterdam Stock Exchange (AEX) ... DEUTSCHE BÖRSE NEWCO LONDON STOCK EXCHANGE 50% 100%% 50% 100% 50%